tv Whatd You Miss Bloomberg October 30, 2015 4:00pm-5:01pm EDT
stocks are closing lower as we hadn't the weekend. equities had their biggest month in four years. the question is, as always, what did you miss? this has been the best month in four years for global equities. we have this chart you cannot mix. miss. we take a look at what is driving this move. >> dark days for banks in europe. his 2016 going to be even worse --estion mar the s&p is reporting its biggest monthly gain since 2011, rebounding from a dismal third-quarter. the s&p 500 has climbed roughly 12%. october, all 10
industry groups rose, led by this cyclical. the material that sector, the energy companies and tech companies all gaining at least 10%. you know what did really bad? vixen valium. it was a great move. it was the biggest climb we have ever seen in the history of the vix. low.stock closed at a 2013 it has not been able to get on top of that. it has been a very dismal month for that stock. no matter what kind of defense they put up in support of the company, including today's for our conference call. scarlett: it is still struggling. and taking look at my terminal
at what is moving in the last few days. puerto rican bond yield. maturing in 10 years. this is the highest level ever in its history. -- the yielder 12% is over 12%. serious pay.ous, when we will be able make that, the government says they need to get the economy going. that is making people very nervous. betty: it is becoming a hot potato with lots of people weighing in. the obama administration is talking about maybe adjusting some bankruptcy laws. to taking a look at dollar yen. the chinese yen jumped in value overnight. it is a light jump. this is the dollar losing value
against the chinese yen. it is looking into lower capital control. interest half of its gains in mid-august. the move is way too small to have any meaningful economic impact. it must be a sigh of relief though. he yuan is jumping, i would assume it is helping the reserves in china. betty: you can see all the starts and more on twitter. scarlett: i want to bring in our guests. michelle meyer, for make of america maryland. michelle, good to see you. betty: the big data point is
everyone was so focused on the employment cost index and it was fairly unremarkable and subdued. moving incated by not september and october? it is something the fed was probably aware of and one of the reasons they have been taking down the forecast of nehru. we are not seeing wage growth. it was a pickup in the second quarter, and if we see prints see it go we will higher on the year-to-year basis. i think it helps the december call. they're looking at a basket of indicators. when i think that we learned from the october meeting is that the bars not that high for them to grow at this point. they need to feel confident that
the downside risks have abated both from the global economy and from the financial market. the inflationary pressures-- confident"e quot" that they will be little need them overtime. do you that unemployment lower than we've actually thought? michelle: it's possible that that's why the federal officials to take another numbers. werea few years ago, they showing 5.6% at the peak, and that is because they are looking at the lack of wage growth and saying there must be more slack. is alive and well or is it dead?
when you lose the slack, you want to see a pickup in inflation. there's an interesting hypothesis that says wage growth leads productivity, producti not productivity leading wage growth. michelle: i don't think the phillips curve is dead. i think there is a relationship between the health in the economy and stronger economic growth and wage growth and overall inflation. it is probably just a matter of time before you see strong enough economic performance that it translates to price pressures. the problem is what is the trigger? why have there been years of growth now with the unemployment rate at low levels, you haven't seen the price pressures build. the wages and productivity behave in the same
way whether it is in the service industry or the manufacturing industry? michelle: in three, they should have similar relationships. in an environment where they have high productivity growth, you have this inflationary pressures. ry pressures.ona manufacturing is a faster part of the economy. you see it being more cyclical. things should bobble more quickly on the good side of the economy, on the manufacturing side of the economy, where services are more sticky. pressures don't move as fast. in manufacturing, you are looking at the chicago pmi, well, that was huge today. it was the outlier. scarlett: you're skeptical? michelle: it is such a big move, i don't know. we will have to see what the next month looks like. it is possible that chicago is
seeing higher production. this is a one off move we have not seen. the surveys are still pretty confused. hopefully, it is a signal of stronger growth. i don't want to put all my ex in that basket. -- eggs in that basket. betty: they'll have regional manufacturing surveys. is one more valuable than the other? michelle: we look at the isn equivalent. look at the components of the can see and then you what stood out. building the empire, their headline number is a separate question. often it will not correlate with what you're seeing for the production series or the new order series. that certainly helps. thelett: that begs
question, what are you looking at when you look at data? yes, we have seen a big gap for a while, but it has not always been the case that's been the . betty: we talked about the various ways they can look at inflation when you back out energy and food. there are several options. michelle: they do. there's a whole variety of measures you can look at for inflation. i do think you want to focus on index.si the ecore cpe cpebig gap between cpi in is rental inflation. that is probably creating some pressures. earlier today, the fed it released an updated version of its model of the u.s. economy. something that stood out to me is that the fed lowered their near-term estimate for how fast the economy can grow without producing inflation, the idea
pickup that we will get from that slack faster than we think. that highlighted december as being ok to go. you agree with that kind of assessment? michelle: models provide a nice framework for thinking about the economy. [laughter] betty: that's a light note. michelle: they are imperfect. givesare framework that you the understanding of growth and inflation and allows you to understand the reaction that monetary policy has in that respect. a model is only as good as the data and the assumptions. we do not know what goes in in real-time. it is hard to determine. betty: when you look at inflation going to be corp. pce whatus the headline cpi, th evidence to we have that businesses and consumers think of inflation the same way? in terms of food and energy costs when they make decisions on spending and hiring?
michelle: that's one of the criticisms of the core. why take out food and energy? you're at the supermarket all the time and you fill up the tank. i think the reason for monetary policy, we focus on core, is because that is what the fed can control. food prices are going to swing the two external factors. the weather, foreign demand, commodity prices we know all too well move for reasons that are not going to be a function of what happens in the u.s. economy. but in perspective of setting policy, focusing on core focuses on the underlying trend. the trend we saw in the report today is that inflation expectations longer-term are coming down much more so than the shorter-term inflation. that's at its lowest level since 2002. that is interesting. i don't notice prices at the
store and was there higher, not lower. that we are significantly lower, i would be freaked out. michelle: that was probably the most interesting data point is mining. long-range expectations fell. it fell to 2.5%. on the surface, that's ok. it has been trending lower since the summer. it peaked at 2.8% in july. these are sticky measures. you do not see trends usually emerge. it bounces around. from the best perspective, they are taking notice of that. if it continues to fall, i think it makes me concerned about their credibility as price setters. betty: let's leave it there. you're going to sit around with us. we will talk more about the outlook for jobs, especially with the report to me on friday. -- coming out on friday.
alex: let's get right to mark crumpton. spend moreecision to on troops in northern syria will have an impact in the region. this move marks the first time american troops will be openly deployed on the ground there. the white house emphasized it is not a combat mission, but declined to give more in detail. 29 people died in the sinking of a boat crammed with 300 migrants in the eastern aegean sea. have a deathly toll of 16. many were children and babies. beenthan 200 people have rescued off the northern coast of the island of less bus. the republican national committee suspended its partnership with nbc news for a
scheduled gop debate. this comes after the heavily criticized debate on cnbc. ben carson and donald trump called for a change in the format. reince preibus said the debate was conducted in bad faith. he said it did not focus on economic issues, as promised. nbc says it will work in good faith to resolve the matter. in other news, espn is blog foundedhe gran by bill simmons. pioneeringidered a site, connecting tv networks with a new audience for digital media. in cost-cutting mode after losing subscribers and sing profit growth will be less than expected. that is your first word news. back to you. we don't feel that good
about prices in the long-term. prices fell to a 2002 low. so that was not so great? where we affected by global economic worries, market volatility? well within the normal range. that was not concerning. it was inflation expectation figure that stood out. market measures and inflation expectations are down. the market is willing to dismiss that as long as it survey measures remain well measured. it could be starting to fall, the survey measures. scarlett: how much of that is driven by the cost of oil prices? michelle: that is one of the puzzling things. for some reason, long-run, 5-10 year inflation expectations seem to be conflated with current oil prices.
they should not be. it should be an expectation of how people perceive the health of the overall economy, what they think about purchasing power. it should not be driven by moves in gasoline and oil prices. it is. people assume what happens today could mean that it happens tomorrow. scarlett: it is interesting that you mention it. you can look at regular unleaded prices, and they're down significantly, but they haven't stabilized based on this chart. oil has somewhat stabilized around 44, 40 six dollars a barrel -- $46 a barrel. michelle: the average consumers going to be driven by-- [laughter] let's talk about personal spending. michelle: with the gas savings, you think you'd spend a lot of money? scarlett: that hasn't come out
how we thought it would. what does that say about the u.s. economy's ability to show the from a lot of the turmoil? michelle: on the consumer spending side, i agree that that is not entirely clear if consumers have spent the incremental savings on gasoline. the trend in overall retail sales has been pretty consistent as it was even before we had the drop in gasoline prices. is a change inen the composition of spending, particularly around auto sales in we seen a notable -- auto sales. we've seen a notable increase in energy efficient vehicles and miles driven. they're using their cars more given the lower gasoline prices. alix: how does that playoff or fight his jobs number and what are you thinking? a better question, what is going to make the fed not go in december? michelle: there's a handful of key indicators that we get before the fed meeting.
clearly, the next jobs report matters. our expectation is we will see 150,000 for job growth. the private sector will look stronger with 165,000 in growth. revisions could be precinct against -- pretty significant. those numbers we get 150,000 on the headline and a little better on the private sector, i think that would be accessible for the fed. scarlett: we be entering a whole new world. alix: thank you, michelle. michelle meyer of bank of america, maryland. up, we discussed the pboc's next move, after the break. ♪
scarlett: i am scarlet fu. what did you miss? china's laying out its five-year plan, after ending its one child policy yesterday. where is it in this rebalancing act? jeff, welcome back. lutherays it is studying -- looser capital controls. do these of affects policy initiatives, ending the one child policy, what does that have on the real treat economy? -- trade economy? jeff: so much goes on in terms of policy adjustments. it is hard to keep track of that. the end of the one child policy is going to be a current trend. is a significant population
issue down the road in 10 to 15 years. to increase the birthrate would be good for the growth and long-term. the easing of capital controls is all about liberalizing the exchange rate. they're trying to liberalize interest rates. i think the bottom line is that doing things to stimulate growth in the economy or perhaps they --uld say to slow down the to cushion the slowdown of the economy. there's a huge pool of cash sloshing around. it was not stocks. we have seen margin debt,. we've seen that money move into the debt market. what is the risk for that? geoff: there's a lot of cash and liquidity in china. it is all beginning to leak overseas now. there's capital leaving the country. reserves are beginning to fall. one of the reasons why we
believe the pboc is being cut reserveo requirements is to increase that liquidity overseas. the concern is to avoid more substantial capital leakage of the country. managing this whole process of given thating, for so many years the markets in china were entirely controlled. executive editor of bloomberg markets describes it as a great ball of money rolling into china and trying to find a place to go. it has gone to the property market, the stock market, the corporate market. we have seen the capital ,utflows reaching 250 billion and $280 billion in july and august. as the small of money
rolls around looking for a new place, tracy mentioned it is heading the corporate credit you'd it is to go after that -- credit. where does it go after that? geoff: i think, to be honest, it may go to what is consumer spending. we are concerned about the rebalancing of the chinese economy towards consumer spending. one thing the chinese will do is liberalize interest rate markets. that will push up interest rates on deposits. there is a very high savings ratio in china. a lot of people have money in the bank. you're going to get a consumer boom. some of it is going to help the real economy, which would be a very good piece of news for china. what do you make of the consumer sentiment index, which fell to its record low? the trend is significantly on the lower end now. geoff: i think that is
reflecting the sharp slowdown in the economy. we expect growth in 2016 to be 6.2%. it was 7.4% in 2014. that is a big slowdown. i don't know what hard landing is. that is a pretty rapid slowdown, though. headlines areof still somewhat negative. on the other hand, retail sales are going at 10.5 to 11%. i don't expect the consumer data to be negative for that long. that is where the source of growth is going to be from here forward. this economy is not going to go to zero growth. you're going to cease and stimulus coming in the consumer side. alix: good stuff. jeff dennis of ubs. when we come back, emerging markets are set to rally. what do you do when it comes to brazil and south africa? ♪
>> i am scarlet fu. "what'd you miss?" >> president obama says he is eager to time -- signed into your budget deal. to break thepes cycle of shutdowns and crises that have hurt the u.s. economy. the compromise budget bill extends authority until march 2017. israeli police have shot and killed two palestinians who were assailants in a suspected stabbing incident. one let the victim, an american citizen, injured. the other happened in the west bank.
two men carrying knives ran towards an israeli checkpoint, drawing fire, leaving one dead. a wave of violence has plagued the region, leaving dozens dead. resident attish guantánamo bay in cuba returned home after 14 years. a saudi arabian citizen married to a british woman arrived in the u.k.. he was never charged with a crime. a 16-year-old oregon girl is being treated for give on a complaint. -- you bubonic play. diseasehave gotten the from a flea bite. that is your first word news. back to you. turn your clocks back this weekend. nobody remembers that. thank you so much. quick recap on u.s. stocks.
month was impressive. the s&p 500 with best monthly advance since 2011. staying away from the horrible third quarter. >> it was a different story for the vix, the biggest monthly decline ever. it is on a knife's edge. >> i want to take a look at the long-term insulation expectation, 13 your chart, a huge move lower. you can get a sense of how bad the inflation expectation has become, lowest since 2002.
what will make prices go up? what will give confidence to consumers? >> will they hold off on spending or spend right away? out that youd usually only notice price changes on the upside, not the downside, so that is how bad it is. >> let's take a look at your. france is outperforming, germany: behind. real-time activity for germany in yellow, france and blue, weighted compilations from business and consumer sentiment surveys. but wereas dominated, starting to see the upswing in france. >> why? >> germany is dealing with the fallout from the vw scandal. in france, the labor market is more flexible. on sunday,open
introducing more competition in the transportation sector. >> i love that. thank you. we are back with the head of global markets emerging strategy at ubs. jeff, you had a note that hypothesized that south africa could be the next brazil. what is your biggest to point it could make that happen? >> the interesting thing was that i was visiting clients six weeks ago, and i was asked this question in leslie. it is close to being downgraded from investment-grade yet. most important thing to keep an eye on is the budget situation in south africa, which today is inferior to what it was in brazil two years ago, albeit brazil deteriorated so badly since then. so we are watching budget deficit, interest rates, to what
extent government expenditure is rising too much in the overall economy. those are your main indicators on whether this is a real risk. >> is south africa just as runnable to china as brazil is? >> no, it isn't. south africa does send 10 exports -- 10% of exports, precious metals, nonvolatile. you see volatility and south africa is like brazil is through a rising dollar, fears about fed raising rates, etc., the currency is runnable and still a little overbite given the economic conditions in the country, so i think -- >> i was wondering in what currency their debt is serviced in. they have some
foreign-currency debt for sure, but they also have relatively well formed local markets. share of see the foreign-currency debt and the total that you do and other emergency markets such as carpetsso they have the tapping foreign markets less significantly. one thing they do have tens to be more domestic currency than foreign currencies, so it is more of a risk aversion story. they are running a deficit of 5% of gdp. if the dollar goes up, people worry about the fed. that is what makes the currency vulnerable, not particularly the debt situation, the corporate so the government. >> let's switch gears to india. i know you like that market. we have seen the market has outperformed other emerging markets. what is india's value proposition relative to other emerging markets? >> i don't think it is a value
proposition at all. without getting too clever with terms, i think it is more of a growth proposition. you do pay a high multiple to be in india. you are right, that is always the risk that money will leave on bad news. we considered to be essentially the best corporate growth story, the best corporate sector story i should say, within the emerging markets. now is china slows, the strongest growth story -- you have a very good central bank that has been very careful about inflationown expectations. they are doing that already. although there is some concern about relatively slow reforms compared to what people would like a -- to have seen, the bottom line is reforms are coming through as well, so it is an expensive market that should be expensive and we think it will do well. >> what can other central banks learn from india's central bank? >> get is always easier to deal
with an economy that is growing nicely, but i think the story is to bringou stay tough down inflation expectations and above all the markets are convinced that you are going to be successful, well inflation expectations come down, you can start to reduce interest rates relatively rapidly without having a negative effect on local bond markets are indeed on currency either, so i think it can sort of get moving on interest-rate cuts. you can't panic. you mustn't panic here with weak economies. you mustn't cut rates to sin. i think that is what india tells you. let's take a look at all emerging markets in the last month. the big performance we have seen, what part of that is a short covering position unwinding versus a fundamental belief in markets like indonesia and south africa and china? those,ink it is both of
but it is also something else. of a catchis a bit up where the fundamental relativists are bored in markets. we have argued that the markets have been tracking the poor performance of earnings this year. they exceeded earnings growth earlier than yield. now they are trying to reconnect. this was a reaction to the decision the markets took in late september that the fed was on hold until next year. we are not so sure that is the case. we think they will move in december, so the vernal ability given that we have price the fed in and now we have started to price it out again, what will really help emergency markets down the road and this is what we need to see and were not ,eeing yet is economic growth better export growth, and above all better earnings growth. without that, we would just have these shorts in rallies without going very far, which is very frustrating of course. >> very quickly on that point.
in which geography do you see the most diversification and prices? question. a fair ultimately, the place where the could be dislocation in prices to generate some returns would be latin america. not yet, because you probably need to know the dollar has bought them out and you need to before has bottomed out you want to buy that. the other one that we think is way out of line with fundamentals is russia, where we are overweight, five times earnings, the oil prices beginning to rebound. russia and parts of latin america, but we think it is a bit early to push for latin america or brazil, but we do like russia a lot because we think oil prices are bottoming out. >> thank you very much. up, deutsche bank and credit suisse, near-term future for european banking next. ♪
>> i and scarlet fu. "what'd you miss?" a look at some of the biggest business stories right now. bill ackman spent four hours defending valeant from sickles. -- pharmaceuticals. 19%,s were down as much as the lowest since july 2013. >> profit fell at chevron. the company is cutting thousands of jobs. net income just over $2 billion, 4 billion less than a year ago.
chevron will cut as many as 7000 jobs. vw willing to make a deal with employees that have knowledge of the emissions of scandal. they would be off the hook for any possible claims. that is according to a daily newspaper in munich, helping to advance an internal probe. many suspects are refusing to cooperate. >> dupont is opening the world's largest ethanol plant. the $225 million refinery plans to make 30 million gallons of ethanol each year. the industry is battling controlling companies over how much ethanol the government will require for the nation's gas supplies. >> that is your bloomberg business/. it is investment banks are telling investors that it will take years for overhauls to come through. what does that mean for european banking?
your best known for correctly predicting the financial crisis, so give us your best forecast for how long it might take for europe's banks to recover from their ongoing problems, market share, falling earnings, increased litigation and regulation, capital shortfalls, you name it. >> exactly. look at what is happening to deutsche bank. deutsche bank in particular has actually not done the cleanup that it should have done, and it has been heavily criticized by german regulatory authorities for becoming to bloated and flabby in its management. bank tosee here is a big that is now contracting
massively, but without any clear mission yet. the weakness in the banking system in europe is both a reflection of the failure to restructure and a just post prices effectively, and indeed much a bank was dismissive of criticism that was coming from the regulatory authorities. also, of the slump in the eurozone, extreme austerity that is now being pushed through , so there are very few opportunities for profit taking -- making. >> i want to show you a chart inside my bloomberg terminal. thanks and ceos have been obsessed with return on equity. deutsche bank in their latest earnings report showed the return on equity is negative. outdated approach to measuring banks'health?
does it create the wrong incentive? >> i'm not sure that it is. it is still a good measure, indication of a bank's health, but really there is the total picture to look at. to be honest, there is tremendous weakness in the european banking sector. we notice both barclays and deutsche bank are having problems with their investment arms, and both are shrinking their investment arms. that must reflect the fact that those two arms are unprofitable. i think something has to be done about that. chances that the u.k. and the regulators will look back in 10 years and say, you know what, we made a mistake. it seems to me if you look at the last 100 years of financial crises they seem to result from
some type of regulation from the last financial crisis. -- chancese cancers the u.k. will see that? >> i think there is a high chance, not because there is too much regulation. in britain, for example, in excess of private debt, and it is rising. budgetice for responsibility here is predicting the private sector , a much higher9% rates of private debt than three crisis. -- ben precrisis. than precrisis. so we find there is still a -- very largely on
controlled approach to credit creation and to risk assessment within these economies. in this sense, it is a function weakness, but also of the economy's weakness. the two things coming together are bad for returns on equity, but bad for banks and for the economy in general. , is it bad that london stakes are increasingly insular and banding global ambitions? is because they can't compete with u.s. banks at the moment. i don't think it is a bad thing personally. there has been a suggestion that deutsche bank's and barclays investment arm might think about merging. there are hints from barclays they may want that type of mortgage or -- type of merger in order to compete. is their mission to serve the domestic economy or a global one?
endorsed. it is what is being endorsed by those who endorse mr. corbyn. right now, they are focused on fiscal policy, challenging the austerity program the government is currently pursuing, and which looks highly deflationary actually in its impact. so what will it look like? i'm not sure. between now and 2020, when there is another election, so on off a lot can happen in that time. >> most essential bankers can to caps off the inflationary skiers as transitory due to oil prices. you see that differently. what is the one metric you see that is different? ,> the lack of global demand across the eurozone, but across the world actually. that for me is what is creating the slump in prices.
on inflation.a the university of michigan's inflation expectations. i think they are realistic. i think on the oil prices has been too narrow. commodity prices have been falling since 2011. there is a trend downwards. reflectscence also what is happening in the united that the withdrawal of qe has led to a slow deflation of the u.s. economy, which is why i don't expect the fed to put up rates. it is the overall lack of demand in the global economy that explains some of the weaknesses we are seeing. >> do you attribute the deflationary scare across the board to the rise of the radicals across the globe in government, far right, far left, donald trump, ben carson, jeremy
corbyn, is that why we have seen this shift? not talkuld perhaps about deflation. i think it is the austerity. i think it is because the government has poor demand, slack demand, a deflationary environment, contracting public economic activity, investment -- so on, in that is a set is accelerating the trend. people are reacting to that very strongly. in europe, but also the united states, a reaction against that. >> against that backdrop, will britain exit the eu? >> it will depend. overwhelmingly here in britain there is a commitment to the european union, great
deal of skepticism about the eurozone and the eurozone monetary and fiscal policies, but i have to say the migration issue is causing a great deal of unease across europe and also in britain, and i fear that while the pro-european argument will be made positively, it may be overwhelmed by all the anti-immigration arguments, not that i endorse them, but that is a debate happening here. city university, joining us from london. we will be right back. ♪